Parecon Currency - what might it play out

What are your thoughts about a currency in a Parecon? What would it look like?

Throughout the Parecon literature, there is little discussion regarding the monetary system. I was wondering whether any of you had any suggestions as to how this aspect could be operationalized.

My thoughts on this are as follows…

  • In our current economy, there is really just the economy and its health which determines the strength or value of its currency. At one time in our history, a currency was backed by gold. In a Parecon, the currency would be based on the unit of labour. One unit of currency or a credit would be worth one hour of labour for example. The advantage of this is that there is no inflation in a Parecon, the value of a unit of labour or hour of work and its value would remain constant forever. It is an input. Only the output would vary if efficiencies are realized through improving worker productivity for example.

  • I would suggest a digital currency, much like our credit cards or banking cards have replaced cash, so no paper or hard currency made from precious metals. It could be administered using blockchain technology and distributed ledger system much like a cryptocurrency or a central computer like that used for credit cards, the latter being must vulnerable to cyber attacks. This system would serve as a means to issue currency/credits when someone earned it, much like a paycheque every two weeks and it would also serve as a bank account and be used to administer the saving or spending of currency by consumers.

  • There would be no central bank or federal reserve or local banks. Worker Council budgets, approved by Iteration Facilitation Boards, would form the basis of how much money could be created within the economy once the planning process is completed. Currency would be created when it is issued through a worker council payroll system. A decentralized system of checks and balances would be put in place to issue currency similar to how in accounting systems they match invoices to packing slips, and require two signatures to issue a cheque.

Money would be then be created directly from work or effort. In today’s system, it is created by government borrowing/spending and the fractal banking system. This new Parecon system would do away with that.

What if someone wanted to take out a loan to buy a car? How would that work if there are no banks to borrow money from?

Well, let’s say that the car dealership is cooperating with some other monetary type of institution that checks credit scores, etc, would determine whether you qualify for a loan. It would be a very similar process that we have today when credit checks are done on consumers. In other words, if you have enough income to cover payments, you are approved, the car would be produced and workers who produced the car would get paid for their effort, right from the IFB approved WC budget. Once the car is produced, it sits as an asset under the Worker Council that produced it (as a debit). The car is shipped to its new owner who starts to make payments directly to the WC that produced it. As payments come in they would be credited against the asset account under which the car sits or Inventory until it is completely paid off. Note that under no circumstances would there ever be any interest charged on loans.

What if we wanted to build a new state of the art automobile plant, with robotics and the whole thing? Where would the capital come from?

If a long term planning board approves of such a venture, under a Parecon, it would not be necessary to seek actual funding but only approval to build by the IFB and long term planning boards that sit with the automobile makers federation. No capital is needed. All that is needed is an idea and a labour supply. If several proposals are presented and one is ultimately approved, that WC would be granted a budget to spend whatever it needs to build the plant. Workers would be hired and paid until the plant is built.

In short, there is no need to raise capital in a Parecon. All you need are good ideas and a labour supply. The currency is created out of the labour that produces goods that are needed by a society.

C

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This is a great topic even for a video. In my view there is discussion about how money would work as consumption credits in Robin Hahnel’s book Of the people, by the people (OTP). FAQ section of the site also has this article: https://participatoryeconomy.org/faqs/is-there-money-in-a-participatory-economy/

Also relevant questions in your post, this is a topic that merits more discussion to avoid misconceptions and better understand how money works in a democratic economy.

I love what you’ve shared here so far! Its a really great fleshed-out explanation of what parecon’s remuneration system is, and I can’t wait to see how this turns out in the final stage! My main points so far might be these:

  1. I’d probably clarify that credits within parecon are not like the money you get from capitalist wages; critics of parecon see the remuneration system and somehow see it as analogous to capitalism’s wages & money (mainly thinking of Steven Johns’ criticism of parecon, which is a wonderfully boring one). How you’ve described it would be suitable enough as reasons to differentiate parecon & capitalism in terms of remuneration.

  2. I worry that new tech would have to be used in order to make credits similar to cryptocurrency; as it is now, cryptocurrency is highly volatile and takes up an incredible amount of energy in order to get it. A general accounting system may seem promising, however I worry that might be used against everyone else.

My personal realization of the system is that our averaged remuneration for the year (blame the balanced job complexes for that) represent our accepted average consumption for the planning process; this would help reflect whether someone is consuming over or under the social average. This, of course, would have to be represented using some number, of which the simulation of the participatory planning process showcased around last year (and a website loaded up recently!) seems like a promising way to represent everything.

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I read the John’s article. He seems to be locked into an ‘us and them’ mindset and doesn’t grasp that under a Parecon there is no ‘them’. He argues that a workers goal is to work less and always for more reward. That can be realized under a Parecon. We could work just enough to cover our basic needs of food, water and shelter, but that might be too primitive a lifestyle for most people. Alternatively we could invest our energy to automate production to the point where machines would do most of the work. In short what he is saying is that he can’t take his responsibilities under a Parecon and behave for the highest good. He’s unable to visualize what it would be like to live under a Parecon. Sadly a lot af people shared his sentiments.

Yeah, Johns’ article is not a really great thing to read through. It seems Michael Albert also responded to him, however his response is rather lacking IMO.

Do you happen to have any comments in relation to point 2 from my original post?

Hi pknrpe

I’d be happy to respond to you point 2…

I share the same concerns as you do, but I felt it a better option than a hard currency due to its ease to produce within a Parecon than to actually having to produce paper money, which in fact in our society, very little actually exists.

A cryptocurrency is highly volatile because it is a market driven product much like gold. It can fluctuate radically, but in a Parecon a credit would actually remain stable because the value of the currency is based on labour and it’s not created out of anything else, such as the fractal banking system that literally creates money out of nothing, they are really just numbers. Given an hour of labour is a constant over time, the value of the currency would also remain constant (i.e. 1 coin = 1 hour of labour). Its worth will never fluctuate unless there is some inflation, which in a Parecon there should be little to none.

As for using incredible amounts of energy, you are absolutely correct. This occurs when computers are mining for coins. There must be hundreds of computers mining for Bitcoins. In a Parecon, I believe limiting the number of computers to say 10 for all of the USA would probably keep things manageable and the system would still keep its integrity.

I’m not sure what you mean by your last sentence, could you elaborate a little bit further?

C

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What would be the benefit gained from using a crypto currency to express demand or give production inputs in a democratic economy based on planning, where money would primarily be used as consumption credits? I’m hard pressed to understand what problem it would solve.

Yes, there’s been little discussion in the PE literature on how “money” or something like it would work in a PE. That means the matter is left to the imagination of the reader, given the rules of a participatory economy. For me, I envision the “money” in a participatory economy as a form of non-transferrable credit. By “non-transferable” I mean that the money can only be used as credit by the person who earned it — the money can’t be used by anyone else. You’re not allowed to “steal” a credit, and if you were to somehow acquire a credit you didn’t earn, you wouldn’t be allowed to spend it and the economy would reject the attempt.

That’s in contrast to how some money works now. If I have a US dollar bill which I earned but I give that to you, you can spend it just as easily as I can even though you didn’t do any effort or sacrifice to acquire that dollar. In a participatory economy, only the person who earned a credit can spend it. The reason why is the norm in a participatory economy of remuneration by effort and sacrifice, tempered by need. You get paid only for effort and sacrifice expended in socially-valued labor. Thus, the currency in a participatory economy — the mechanism for remuneration — must be set up to adhere to that rule.

These requirements would lend itself to a digital currency, but I would not use a blockchain-based cryptocurrency as a currency in a participatory economy. Such cryptocurrencies are enormously inefficient, and because of their huge energy requirements are tremendously destructive to the environment. Plus, their value as a currency, even in a market economy, is highly dubious for lots of reasons. For more, see Nicholas Weaver’s work on Youtube and on Ars Technica.

But the question remains: How do you ensure that the credit you earn in a participatory economy is credited to you and you alone, and when you spend that credit nobody else can use that credit ever again? There are ways to encrypt transmissions in a secure fashion (like the varieties of public-key algorithms like RSA and elliptic curve cryptography), and these could be used to secure the details of a transaction in a participatory economy. How those details are to be worked out is one future avenue of research.

But thinking further on the topic, I wonder if the problem is actually simpler than we realize. Remember that the credits to be awarded in a participatory economy are generated as part of a participatory planning procedure. At the beginning of the participatory planning year (assuming a year-long participatory plan), you’ll have submitted your plan, which would include the anticipated consumption for the year, the total amounts of credits necessary to pay for that consumption, and the work you anticipate doing to earn the credits for that consumption. There may be changes, there may be some impulse purchases, there may be some emergency purchases, but I suspect that once the plan has been worked out, they largely will remain the same over the course of the coming year.

People on the respective roles (payer, payee, recipient) will simply look up the details for a given transaction on the respective sides of the participatory plan, recognize it as part of the plan, and note the transaction as completed across their respective ledgers with a single universal unique identifier (UUID), and an affiliated timestamp. We use UUIDs now widely on the internet, and you can generate your own. If anyone were to try to steal something, they would have to replicate the UUID and the timestamp, and get buy-in from all the respective parties; if there’s a mismatch, the transaction would be blocked. No encryption needed; the system makes it secure and safe.

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Re: Claude, thanks for the response to me! You make great points about the credits in parecon; I certainly didn’t consider the volatility’s relation to the market.

I’m not sure what you mean by your last sentence, could you elaborate a little bit further?

Well, an electronic accounting system can be susceptible to a numerous amount of things; the main things that comes to mind are hacking threats and possible code malfunctions. It may be a bit overstated on my end, however I do think we should at least account for these if we do use an accounting system for credits.

Antti, you said…

The cryptocurrency wouldn’t be necessarily a ‘solution’ but some sort of digital currency is needed given the only option to not having one would be to barter, and in an advanced economy like ours, that’s not really an option. A digital currency would be useful to express demand because all consumer purchases could be captured in a database. That would make it much easier for consumers to estimate their anticipated consumption during the planning phase. Worker councils would also benefit in the same way when it comes to its inputs. In the context of a WC though there would be an accounting system in place, so just that alone would be enough to refer to for next planning cycles.

C

Computer accounting systems are pretty robust these days, though they can be compromised by a hacker. They are generally stand alone systems, and not linked to the internet so that affords them some protection against hackers. I don’t think it would be an issue, but there are people out there who know these systems very well, I’m sure when the time comes they could recommend the best system available to meet our needs.

C

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Hey Mitchell

I like the notion of "non-transferability’. I believe that systems or rules would have to be put in place at the very least so that no one can accumulate vast sums of credits. Otherwise, it could potentially put us right back in the same situation we are in now in a capitalist economy where a handful of individuals have enormous power over the many. The only exception is that I would allow transfers to occur within a household between family members or between households where people are related just to make it easier to give you kid an allowance, a birthday gift or something like that.

The other point you raise about how to transfer credits to the one who earned it could be handled right at the workplace, just like the ways it is done today when we receive a paycheque. In fact, this is where money would be created, right out of labour and at the workplace. It could be deposited right into the worker’s electronic ‘wallet’ for example, using the leading edge encryption technology available to ensure secure transactions. Then it either gets spent on goods and services and what is not spent is saved for a later date, just like we do today.

You said…

I couldn’t agree with you more on that point. When I look at my own spending, I pretty much buy the same kinds of food week to week. Once in a while I will do take out. I pay property taxes, put about the same amount of gas in the car one week to the next, etc. The vast majority of my expenditures are pretty predictable. There is always of course the unpredictable like the time my lawn mower wasn’t tied down properly in my SUV and it went crashing through the rear window when I hit the accelerator. That’s why we have repair shops for these sorts of unexpected things. But guess what…we might not know when and where these things will happen, and so can’t really budget for them, but if you look at all of the repairs a garage does in a year, tally them all up for your community and voila, you have an estimate of how many garages we need within our community and an idea of the types of repairs they will need to do. The trick for a consumer would be to not allocate all of their credits to consumption purchases at the beginning of the planning phase and everyone would have to keep a reserve for example to make sure there is some money in the budget for the unforeseen.

You said…

I didn’t know this technology even existed. We really don’t need to worry about the how, but the what, because when the time comes, we’ll use whatever best technology is available at the time.

C

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Posting this on behalf of Robin Hahnel on a currency in a Participatory Economy:

  1. If a country launches a participatory economy it will have a currency simply because this is useful. Monetized exchange is far more convenient than barter exchange. So a country with a participatory economy will have a national currency such as the dollar, or the euro, the yen, he peso, etc. Right now one of my biggest heroines is Stacey Abrams. So I’m going to name my example currency “a Stacey.” And when people in this participatory economy talk about how much anything costs, i.e. its price, they will say “this book costs 14.99 Stacey’s, or S14.99. That’s all there is to it. It is that simple. Everyone will talk about the relative values of different things simply by saying how many Staceys they cost, or are worth. How many Staceys one has to pay to buy them. How many Staceys one receives if one produces or supplies them.

  2. In a healthy and desirable economy there is no need for any other currency, i.e. a participatory economy does not need any cryptocurrency of any kind. The Stacey is all we will need. Any other form of currency would be redundant, dysfunctional, or generate outcomes that are inferior to those we will achieve using the Stacey alone.

  3. People who work in worker councils get income in Staceys. People who get allowances – children, retirees, disabled – get allowance income in Stacey’s. Worker councils calculate the social benefits of their outputs in Staceys, to be compared to their social costs also in Staceys, and a worker council proposal is judged by its SB/SC ratio, are all calculated in Staceys.

  4. If a person doesn’t spend all their Stacey income in a year, then they have savings in Staceys – presumably recorded in their saving account in a credit union they use. If people want to spend more than their income in any year and lack the savings to pay for that, they will apply for loans in Staceys from the credit union they belong to.

  5. If people go to a poker game on Saturday night with friends, and they decide to play for “real money,” people will buy chips with Staceys, and when everyone cashes in their chips at the end of the night some will go home with more Staceys than they arrived with, and some will go home with fewer.

  6. Since this country which uses the Stacey will engage in international trade with other countries… who may have a similar or a different kind of economic system…. this raises the question of how the Stacey will trade versus the currencies of other countries. That is now all explained in chapter 15 of Democratic Economic Planning. However, the “currency” part of that chapter is pretty straightforward, standard economic stuff. If the participatory economy using the Stacey exports more than it imports then the supply of Staceys in international currency markets will decrease, and therefore the value of the Stacey relative to the currencies of other countries will rise. [A Stacey will buy more dollars, for example.] If it imports more than it exports then the supply of Staceys in international currency markets will increase, and the value of the Stacy relative to other currencies will fall. [A Stacey will buy fewer dollars, for example.]

There is simply nothing more to say about “money” or “currencies” in a participatory economy. And there is certainly no reason for a country with a participatory economy to become involved with any kind of “crypto currency” at all.

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This is helpful information as to Robin’s thoughts on a currency. He doesn’t speak as to whether it would be digital and whether there would be some form of physical currency.

What he is saying is that it is a convenient means of exchange. I would argue that if we moved to a Parecon tomorrow people wouldn’t see much of a difference in terms of having a paycheque deposited into an “account” at some institution designed for that purpose and spent as we do today, using credit cards, banking debit cards and cash.

I’d argue we would be better off using a digital currency over a physical currency for the majority of our purchases given an electronic system can be used to track demand for products and services.

I’d be curious as to his thoughts as to how the currency would be created. That is, would it be created when a person works, they are issued currency?

C

I agree with you that there will be many similarities to today:
The currency will be digital (I doubt there would be any need to have physical cash - it is already moving towards obsolescence), and everyone will have a current account like today that is debited and credited for income (from work, special needs, or pollution compensation) and expenditure (for goods/services used).

With currency creation, have you read Anders Sandstrom’s book on Anarchist Accounting? He explores a possible accounting flow of transactions in a participatory economy. He suggests that there is a ‘society account’, from which income would flow to worker council accounts. Worker council members then distribute income between themselves based on effort/sacrifice procedures that they have established.

I think the important point about currency and a participatory economy is that “currency” is no bid deal in a participatory economy. There is nothing in particular to say about “currency” in a participatory economy. “Currency” in a participatory economy is not a subject that requires much discussion.

Whether a participatory economy uses a physical currency – coins and paper money – or the currency is entirely digital – credit and debit cards – is a question of “currency technology.” Currency technology is certainly moving in the digital direction these days, which is probably for the better simply because it is more convenient for people. But this appears to vary considerably right now depending on the level of economic development in a country. And because both LDCs and MDCs could adopt participatory economics, in all likelihood whether such a country used a physical or virtual currency would depend on whether the country was more or less economically developed at this point in time. Either way would be fine.

Here is a useful slide relevant to this topic from Anders’s presentation on a possible accounting system in a Participatory Economy, which includes the flow of income.

Consumers’ income
1 - Compensation for work
2 - National benefit programmes for young, old, sick, students etc.
3 - Compensation for harmful pollutants
4 Redistributions of income within the consumer sector
5 (Collective funding of public service systems)
12. Access to labour

Compensation for harmful pollution
3. Compensation for harmful pollutants
9. Fees for emittance of harmful pollutants

The categorisation of goods and services
6. Payments for delivered goods and services to consumers
8. Payments for received and delivered goods and services to and from other workplaces

The cost of production, and use, of capital assets
7. Fees from consumer councils and federations for access to assets, which are passed on to society
10. User rights fees from worker councils for access to assets, which are passed on to society
11. User rights fees from worker councils for access to natural resources, which are passed on to society
14. Funding of investments – the production of capital goods – passed on to producers

Society’s income and its distribution
Income
7 -11. Fees from CCs and WCs for access to assets and natural resources
12. Fees for access to labour
13. WCs surplus or deficit
Consumption
1 - Compensation for work
2 - National benefit programmes
5 - Public service systems
Investment
14. Funding of investments

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From Ander’s presentation it states…

Consumers’ income
1 - Compensation for work

…where the income is sourced from a “Society Account”. From an accounting perspective this makes perfect sense. My question is…

On what basis would this income be created?

If it’s based on work, then an hour of labour would earn an individual ‘x’ number of credits? And that would be based on how much a person plans on working, whether that is part time or full time?

So once the annual planning exercise is completed, whoever is in charge of the Society Account would examine the WC proposals and issue the amount of currency they need to carry out their work, much like when a budget is approved by senior management, then carry out their plan, whereby people working at a given WC would earn their incomes?

I assume that in the end, all accounting would zero out, that is, income earned would be spent on goods and services. Only if a person accumulates some savings would there be a balance sitting in an individual’s “bank” account. And in the case where consumers spent more on an item then it cost to produce, that excess which the WC collected is remitted back to the Society Account.

Does this make sense to anyone or have I missed something.

C

Hi Claude.
I approach your first question in a bit more detail in my book. As I see it, one way to do this is to calculate a “base compensation” for an hour worked in the economy, based on the expected GDP and total hours worked in the year to come. And then also allow for this base compensation to be adjusted based on the effort ratings in WCs while the average hourly compensation in the economy does not change.
As for the second question, once an annual plan is accepted, the needed amount of currency is also decided and will be “created” as the plan is executed.

I think we should consider a moneyless purchasing mechanism for post-deficit goods. Products like coffee takeaway, street lemonad, road-farm fruit, and vegetables are widely available and don’t require complex refrigerator systems, payment getaways, cashier personal, accounting and other complex market systems. Instead, they could be sold similar way to the “all-inclusive” system in Hotels and Resaurts. Once you have paid a housing fee or hotel fee for a living, you can access all of this free stuff in your home living area just by showing a residence pass. Th more consumer goods are becoming post-deficit the bigger share of the economy can work this way.

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